Question

Timpco, a retailer, makes both cash and credit sales (i.e., sales on open account). Information regarding budgeted sales for the last quarter of the year is as follows: October November December Cash sales $ 100,000 $ 120,000 $ 80,000 Credit sales 100,000 150,000 90,000 Total $ 200,000 $ 270,000 $ 170,000 Past experience shows that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale; the remaining 40% are collected in the month following the month of sale. Customers are granted a 1.5% discount for payment within 10 days of billing. Approximately 75% of collectible credit sales take advantage of the cash discount. Inventory purchases each month are 100% of the cost of the following month’s projected sales. (The gross profit rate for Timpco is approximately 30%.) All merchandise purchases are made on credit, with 25% paid in the month of purchase and the remainder paid in the following month. No cash discounts for early payment are in effect. Required: 1. Calculate the budgeted total cash receipts for November and December. (Round your discount factor to 3 decimals places. Round your other intermediate calculations and the final answers to the nearest whole dollar amount.) 2. Calculate budgeted cash disbursements for November and December (budgeted total sales for January of the coming year equals $200,000).

Answer 1

SOLUTION

1. Calculation of amount of cash realized during the month of sale and following month of sale-

Particulars	October ($)	November ($)	December ($)
Credit sales (A)	100,000	150,000	90,000
Less: Uncollectibles 5% (B)	5,000	7,500	4,500
Collectible credit sales (C=A-B)	95,000	142,500	85,500
Cash collection- 60% current month (C*60%)	57,000	85,500	51,300
- 40% following month	0	(95,000*40%)38,000	(142,500*40%)57,000

Calculate amount realized after discount-

Month of sale	Month of realisation	Gross receipts (1)	On discount (2)	Discount rate (3)	Discount (4=1*2*3)	Net receipts (5=1-4)
October	November	38,000	75%	1.50%	427.50	37,572.50
November	November	85,500	75%	1.50%	961.88	84,538.13
November	December	57,000	75%	1.50%	641.25	56,358.75
December	December	51,300	75%	1.50%	577.13	50,722.88

Budgeted total cash receipts-

Particulars	November	December
Cash sales	120,000.00	80.000.00
Add: Credit sales-
Collection of October month sale	37,572.50
Collection of November month sale	84,538.13	56,358.75
Collection of December month sale		50,722.88
Total collection	242,110.63	187,081.63

2. Budgeted cash payment-

Particulars	October	November	December	January
Total sales (A)	200,000	270,000	170,000	200,000
Less: Gross profit (30%*Sales)(B)	60,000	81,000	51,000	60,000
Cost of goods sold (C=A-B)	140,000	189,000	119,000	140,000
Inventory purchased (100% of following month COGS)	189,000	119,000	140,000
Cash payment current month- 25% of inventory purchased	47,250	29,750	35,000
Cash payment following month-75% of inventory purchased		141,750	89,250
Total cash payment	47,250	171,500	124,250